E10-23b (analysis of subsequent expenditures) plant assets often

E10-23B (Analysis of Subsequent Expenditures) Plant assets often require expenditures subsequent to acquisition. It is important that they be accounted for properly. Any errors will affect both the balance sheets and income statements for a number of years.


For each of the following items, indicate whether the expenditure should be capitalized (C) or expensed

(E) in the period incurred.

(a) __________ Expenditure that increases the efficiency and effectiveness of a productive asset and increases the asset’s salvage value.

(b) __________ Improvement.

(c) __________ Replacement of a minor broken part on a machine.

(d) __________ Expenditure that increases the useful life of an existing asset.

(e) __________ Expenditure that increases the efficiency and effectiveness of a productive asset but does

not increase its salvage value.

(f) __________ Interest on borrowing necessary to finance a major overhaul of machinery. The overhaul extended the life of the machinery.

(g) __________ Ordinary repairs.

(h) __________ Improvement to a machine that increased its fair market value and its production capacity by 30% without extending the machine’s useful life.

(i) __________ Expenditure that increases the quality of the output of the productive asset.

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